Hotel loans and their best kept secrets

Like the rest of the real estate industry, the hotel industry took a huge hit during the ‘08 financial crisis.  Today, hotels are gaining traction and are popular for owners and investors again, especially in hot markets such as San Francisco, Los Angeles, New York, Las Vegas, etc.  However, searching for the right type of financing can be a daunting task.  Hotels can be a cash cow or your worst nightmare depending on size, location, flagged vs. unflagged (e.g. flagged – large brand/chain hotel; unflagged – not part of a national brand/chain), etc.  Common hotel loans include, but are not limited to, existing hotel loans, ground-up construction financing, real estate acquisition, PIPs (property improvement plan loans – upgrade and update decor, furniture, fixtures, and equipment), refinancing, and lines of credit for working capital.  It is extremely important for hotel owners to obtain the right financing that fit their loan purpose.

The SBA route

SBA (Small Business Administration) 504 or 7a financing can be used for the purchase of a new or existing hotel, refinancing, or remodeling project.  How it works: The borrower must contribute a minimum down payment of 10% of the loan amount, the traditional commercial lender (bank) contributes 50% of the loan, and the SBA/CDC (Small Business Administration/Certified Development Company) contributes the remaining 40% of the loan.  Recent changes to SBA guidelines have also made it possible to finance multiple properties with the same loan.  Be aware of prepayment penalties, which are typically 5-3-1.  That means,  5% for the first year, 3% for the second year, and 1% for the third year, with no penalty after the third year.

The SBA 504 loan program has been popular among hotel owners.  The program allows you to refinance your hotel up to 90% LTV (loan to value).  Other commercial real estate loans may require up to 70% LTV.  With SBA financing, you can finance your hotel with a fixed interest rate for 20 years on the SBA portion and 25-30 years fully amortized on the lender portion.  

Finding the right lender

Searching for hotel loans is a different animal in itself.  Borrowers do not know which banking institution has an appetite for which types of loans.  Banks are constantly balancing their portfolios.  One institution may need owner-occupied commercial real estate for its portfolio while another institution may want industrial properties.  There is no way for a borrower to know.  We have advised several clients to use Magilla Loans, a fast, anonymous, and free search engine for commercial loans.  It is simple to use, just answer a handful of questions and receive multiple loan proposals.  Above all, Magilla Loans is absolutely FREE.  There are no hidden fees, and you choose which lending institution you want to work with.  You can choose multiple lenders to find the right lender who fits your hotel lending needs in the comfort of your home or office.  

Due to the use of technology, obtaining financing for your hotel has become less complex.  Educating yourself with the right programs and discussing your options with multiple lenders is key.  Magilla Loans will do that and more.  You will save time and money for the borrower as well as the broker.